US Federal Reserve officials said Wednesday (June 12) that inflation has fallen further toward their target level in recent months but signalled that they expect to cut their benchmark interest rate just once this year.
The policymakers’ forecast for one rate cut was down from a previous forecast of three, likely because inflation, despite having cooled in the past two months, remains persistently elevated.
In a statement issued after its two-day meeting, the Fed said the economy is growing at a solid pace while hiring has “remained strong.” The officials also noted that in recent months there has been “modest further progress” toward its 2% inflation target. That is a more positive assessment than after the Fed’s previous meeting on May 1, when the officials had said there had been “a lack of further progress” on inflation.
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The policymakers, as expected, kept their key rate unchanged Wednesday at roughly 5.3%. The benchmark rate has remained at that level since July of last year after the Fed raised it 11 times to try to slow borrowing and spending and cool inflation.
Fed rate cuts would, over time, lighten loan costs for consumers, who have faced punishingly high rates for mortgages, auto loans, credit cards and other forms of borrowing.
The officials’ rate-cut forecast reflects the individual estimates of 19 policymakers. The Fed said that eight of those officials projected two rate cuts and seven projected one cut. Four said they envisioned no cuts at all this year.
The Fed’s updated quarterly projections are by no means fixed in time. The policymakers frequently revise their plans for rate cuts — or hikes — depending on how economic growth and inflation measures evolve over time.
Also Read: US inflation cooled in May in sign that price pressures may be easing
On Wednesday morning, the government reported that inflation eased in May for a second straight month, a hopeful sign that an acceleration of prices that occurred early this year may have passed.
Consumer prices excluding volatile food and energy costs — the closely watched “core” index — rose just 0.2% from April, the smallest rise since October. Measured from a year earlier, core prices climbed 3.4%, the mildest pace in three years.
Inflation had cooled steadily in the second half of last year, raising hopes that the Fed could achieve a rare “soft landing,” whereby it would manage to conquer inflation through rate hikes without causing a recession. But inflation came in unexpectedly high in the first three months of this year, delaying hoped-for Fed rate cuts and potentially imperilling a soft landing.
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